I constantly get asked by other agency owners how I grew Magnet Monster to be one of the leaders in the space.
Many of you are just starting out as freelancers or have aspirations to build a successful agency.
And then there are lots of DTC owners who ask for my opinion on Klaviyo's trajectory.
If I was starting out again right now, here's what my advice would be to both groups.
So you've decided you want to jump on the Klaviyo train and start helping eCommerce brands scale their email & SMS revenue.
Let's take a look at the current opportunities based on Klaviyo's recent IPO announcement:
- 130,000 paying customers
- Over 1500 customers paying Klaviyo $50k per year in SaaS costs
- 9,000 agencies/partners in the ecosystem
- Klaviyo has something like 65% penetration of the Shopify Plus ecosystem as well (around 10,000 stores, I believe)
Let's break down the above stats a bit more realistically to get a sense of how much business is truly out there for agencies.
Let's say 100,000 of those stores can actually afford agency/freelancer fees (they can't, but I'm being generous). Of these 100,000, probably 50% will manage their Klaviyo services in-house, leaving 50,000 brands up for grabs for marketers to sell services to.
We'll be overly generous and slash that number of agency partners by nearly half, leaving 5,000 business to compete for the 50,000 brands available.
Distributed equally, that would be 10 clients for every agency/freelancer.
That's not bad, but it's not exactly a huge upside to aim for when you're looking at future earning potential.
I can tell you from experience that the general going rate for Klaviyo services is less than $5,000 per brand, and that's at the upper limits.
This would work out to around $50,000 per agency, which is a nice little business if you're keeping the gross margins above 50%.
But let me give you the harsh reality of the ecosystem we're operating in and the earning potential available to us all:
- Most brands are paying agencies between $2-3k per month for fully managed services
- As you scale an agency, your margins decrease quite dramatically with layers of middle management
- Klaviyo services are now heavily commoditised due to an influx of cheap labour from countries outside of the Western world
- Although Klaviyo's growth is incredibly impressive, agencies and freelancers are outpacing it at an even quicker rate (just look on LinkedIn, Twitter & Upwork where there are literally thousands of so-called experts all trying to sell the same thing)
- Klaviyo hasn't captured enough of the enterprise segment yet with brands that can pay higher agency retainer fees. There's a reason they're trying to expedite features such as their CDP to move upmarket and capture this segment more aggressively
My consensus is there are not enough brands on Klaviyo to scale an agency due to the massive influx of competition in the marketplace.
This, combined with the fact that eCommerce as a whole is struggling with brands who are pulling back on marketing spend, leaves agency growth with limited upside.
You may think this is me being pessimistic or cynical; I'd like to think it's pragmatic.
I speak to multiple agency owners, many of them the biggest in the space selling Klaviyo services and the consensus is largely the same: pull back, increase retainer value to clients and back the winning horses more.
We've been lucky to have positioned ourselves in this category for the last 2 years but even for us targeting the bigger brands, it's challenging.
I don't say any of this to discourage any of you - I love seeing other people doing well.
Our company's future is in leveraging digital assets and education, so it's within my interest to see the ecosystem flourish.
But I always aim to keep it real with my audience and tell it how it is, and this is my honest opinion.
The agencies that succeed in the next few years are going to be niched down, rooted in specialism using data and also technically proficient.
There aren't going to be many profitable agencies with over 30 clients in this space who aren't encountering significant churn.
My Advice to others
I see two prime opportunities for others looking to enter the space.
First, jump on the coattails of the challenger SaaS gaining momentum at Klaviyo's shift upmarket.
I'm specifically looking at SendLane which is gaining solid traction, and even exploring other more 'niche' platforms, such as Yotpo's recent email offering and Attentive's move into the space.
These companies are still working with very big brands, but practically nobody is marketing themselves as specialists to these platforms.
The riches are in the niches, as they say.
Secondly, I would 100% opt for marketing yourself as a "super freelancer" if your goal is to make as much money as possible and live a comfortable lifestyle.
There isn't the scale in selling Klaviyo services to the masses at strong margins, so opt instead for small, agile setups at your agency with better service offerings with stronger retention. I believe this is the way to maximise profitability and live a more comfortable life.
If you opt for the latter, you can also start to explore Klaviyo's more sophisticated features targeted at enterprise clientele: specifically, their new CDP offering.
These will be desirable skills to possess that attract more high-end clientele willing to pay more substantial fees.
... Or, you can just ignore all of this and try to scale your agency with hundreds of clients.
I'm just sharing my opinion :-)
For DTC Brand Owners
I've spoken to dozens of brand owners over the last years 'concerned' with Klaviyo's move upmarket and increase in pricing.
These concerns are largely unjustified in my opinion as most people are overspending on their existing Klaviyo billing.
You don't need to utilise the entire database of 'active users' in your account; you should be paying for the usage, which this guide will help you with.
Most of the increased spending brands deploy is largely due to inefficiencies with strategy and over-sending to unengaged customers.
For the time being, I see no real reason to be alarmed unless another price hike is imminent.
In fact, I actually think Klaviyo has been increasing the value of the platform significantly with its enrichment of features in the last year.
Given how powerful their ecosystem is right now, you have to ask serious questions about the costs you would accrue by switching ESP.
You'll need to pay for a migration, which may be costly depending on how sophisticated your existing program is as it requires rebuilding from scratch and rigorous Q/A to ensure it's functioning correctly.
Klaviyo's biggest selling point and strongest moat is its ecosystem and integrations. Once you're sucked in, it becomes incredibly challenging to switch.
My final thoughts on who can challenge them most effectively over the next 2 years? It might surprise you, but it's Yotpo if they can get their ducks in a row.
They have serious market penetration of the Shopify ecosystem, an excellent SMS and loyalty product, and robust integrations.
They're also backed by Shopify and have a lot of strong integrations with a phenomenal team.
It's going to be fun seeing these two titans go to war and the end benefit will be you, the customer.
If you'd like to learn how to master email, SMS & Klaviyo, our Monster Email Marketing course covers everything you need to know with over 54 video lessons and countless PDF guides and email design examples - OUT NOW.
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